Eurozone debt crisis could rip E.U. apart: officials

The eurozone debt crisis now threatening banks could destroy six decades of post-war European integration, top EU officials warned on Wednesday.

The dire warning that post World War II Europe risks disaster came shortly after Moody’s credit rating agency downgraded two French banks and as financial markets increasingly calculate the domino damage if Greece defaults.

“Europe is in danger,” Polish Finance Minister Jacek Rostowski, whose country currently chairs EU meetings, told the European Parliament in Strasbourg ahead of emergency talks between leaders from Germany, France and debt-hit Greece.

“If the eurozone breaks up, the European Union will not be able to survive,” Rostowski said of the currency bloc that comprises 17 of the 27 EU countries, a day before European finance ministers gather in Poland alongside US Treasury Secretary Timothy Geithner.

EU officials have warned repeatedly that Athens will not receive the next slice of aid, worth eight billion euros ($11.0 billion), unless it can persuade EU and IMF auditors, about to resume work, that it can overcome its deficit crisis.

At his most dramatic, Rostowski even warned that “war” could return to Europe if the crisis weakens fatally the EU, founded amid the rubble of World War II.

But his underlying message that the ties binding the EU are under intense strain was backed up European Commission head Jose Manuel Barroso.

The head of the EU executive described the crisis as “the most serious challenge of a generation. This is a fight… for the economic and political future of Europe.”

German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou are to discuss the Greek emergency at a teleconference scheduled for 1600 GMT on Wednesday.

Analysts say that decision makers on financial markets are broadly working on an assumption that Greece will default to a substantial degree.

That would hit government creditors as well as private banks and other investors which accepted a partial loss on their investments in July under a yet-to-be completed second rescue for Greece.

“The question of whether or not Greece will default is pretty much solved for the financial markets,” said analysts at German lender Commerzbank, terming a “short-term” default “more or less unavoidable.”

However, EU economic affairs commissioner Olli Rehn maintained that “a default or exit of Greece from the eurozone would carry dramatic social, economic and political costs.”

He added: “Not only for Greece, but also for euro area member states, other EU states, as well as global partners.”

The stakes are rising by the day: after US President Barack Obama called for greater efforts in Europe, the BRICS grouping — Brazil, Russia, India, China and South Africa — said they would discuss possible aid to Europe over Greece next week.

The BRICS are meeting on September 22 in Washington on the sidelines of the annual meetings of the International Monetary Fund and World Bank.

IMF managing director Christine Lagarde described their plans as “an interesting development,” and added that she hoped bond-buying interventions from these emerging powers would be “large and not limited to certain states.”

Moody’s ratings agency downgraded two top French banks on Wednesday — Credit Agricole and Societe Generale — over their exposure to Greek sovereign debt. It left French banking major BNP Paribas on negative watch.

Shares in all three banks have plummeted in recent weeks, although stocks were mixed and the euro steadied in volatile trading on Wednesday.

Merkel fought on Tuesday to soothe alarm on markets over Greece, saying everything would be done to avoid an “uncontrolled insolvency” and stressing that the eurozone would remain intact.

That followed Obama saying the Greek conundrum would be a “significant topic” for the next G20 meeting in France.

Many analysts are concerned that Italy could be the next eurozone domino to fall, with enormous debt which stands at 120 percent of gross domestic product.

Its foreign minister, Franco Frattini, insists Rome is willing to give over control to a more federal Europe.

“Italy is ready to give up all sovereignty needed for a genuine European central government,” Frattini said.

Battling to prevent a debt crisis that has already claimed Greece, Portugal and Ireland, Silvio Berlusconi’s government hopes deputies will on Wednesday pass an austerity package to balance the books by 2013.